Australia | Dec 03 2009
By Chris Shaw
Growth in the Australian service sector consolidated in November according to the latest Commonwealth Bank/Australian Industry Group Performance of Service Index (PSI). The November PSI indicates the pace of growth has slowed as the index fell 2.3 points for the month to a reading of 52.5. The 50.0 point level separates expansion from contraction.
According to Commonwealth Bank senior economist John Peters, the November reading for the PSI matches with other recent economic data in suggesting the Australian economy is in the early stages of a modest recovery, this despite the headwinds of increasing interest rates and weakening fiscal stimulus.
One positive according to Peters is leading indicators such as new orders, sales and employment are all in expansionary territory, as this combined with improving labour market data suggests unemployment may be near a cyclical peak. On his numbers unemployment may top out in the 6.0-6.5% range this cycle.
Australian Industry Group chief executive Heather Ridout suggests the index data confirm a hesitant recovery from the bottom of the economic trough earlier this year, the reasons for the hesitant nature of the recovery being modest growth in consumer incomes and the fading of previous policy stimulus measures.
In terms of the actual data, rising sales and new orders helped the index post an expansionary number for November, while caution on the part of companies with respect to inventories and supplier deliveries kept overall performance subdued. Employment rose modestly, its first increase in 18 months, though this may reflect an increase in hours worked rather than gains in employment levels.
The transport and storage sector recorded the strongest gain for the month, while the retail, personal and recreational services, health and community services and communication services sectors also posted solid gains. In contrast the finance and insurance sector was the weakest for the month, while wholesale trade activity levels also declined slightly.
Sales increased in seven sectors, down from eight in October, with only wholesale trade recording a decline for the month. The lower sales numbers mean capacity utilisation has fallen from a six month high of 75.7% in October to 74.7% for November.
While growth in new orders followed the overall trend and eased slightly, it remains solidly positive at a reading of 56.7, down 1.8 points, while the rundown in stocks in November has seen this measure drop back below the 50 point level to a reading of 44.6, down 7.6 points.